Why should I buy Bitcoin ETF shares instead of just buying Bitcoin?

Australian investors now have a chance to buy shares that directly represent crypto ownership. So why bother?

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History will be made on Thursday as the first-ever exchange-traded fund (ETF) representing direct ownership of Bitcoin (CRYPTO: BTC) starts trading in Australia.

ETFS 21Shares Bitcoin ETF (EBTC) — along with its Ethereum (CRYPTO: ETH) counterpart ETFS 21Shares Ethereum ETF (EETH) — are local products that directly own cryptocurrencies.

While there are already ETFs that track the ups and downs of the crypto industry, those funds never actually buy Bitcoin itself.

Vendor ETF Securities emphasised that the new funds “do not use derivatives of any kind”.

“They are not built as feeder funds into offshore ETFs. Nor do they engage in any lending or staking of the bitcoins and ether.”

So that’s all good and well, but why would an investor bother buying into these ETFs instead of purchasing Bitcoin or Ether themselves?

The case for owning Bitcoin in your own wallet

Purchasing Bitcoin and Ether yourself can be cheaper, as you’re not paying a commission or a management fee to an ETF provider.

Having Bitcoin in your own wallet also means they can be easily exchanged for other crypto, like Solana (CRYPTO: SOL) or Terra (CRYPTO: LUNA).

If your Bitcoin ownership was tied up in an ETF, that’s impossible to do without cashing out to a fiat currency.

Holding Bitcoin via an ETF could be more secure

ETF Securities stated in a blog post this week that the main advantages of crypto ETFs are security and tax considerations.

The vendor noted that Bitcoin funds have existed for years in Europe, yet none of them have been victims of hacks or theft.

“The history of cryptocurrency is littered with instances of hack attacks and thefts. All of which have occurred in unregulated environments and all of which have occurred on low quality exchanges, like Binance.”

One of the reasons ETF providers charge fees is to provide “institutional-grade security arrangements”.

“This top-flight security involves storing all bitcoins offline in ‘cold storage’,” the blog said.

“By keeping bitcoins disconnected from the internet, they are out of reach from hackers. By contrast, many bitcoin exchanges use ‘hot storage’ meaning they remain connected to the internet.”

ETF Securities is also keeping its cold storage devices in a Faraday cage to protect them from power surges.

“Bitcoin ETFs use additional security measures like sharding, which is where private keys are split up across different custodian vaults around the world,” said the blog post.

“Moving bitcoins in and out of a bitcoin ETF always requires approval from two people or more. And the two people must work for different organisations.”

Tax advantages for owning Bitcoin through an ETF

Ease of tax reporting is a major convenience of owning crypto through an ETF, according to ETF Securities.

This is especially the case if the Bitcoin is part of your self-managed superannuation portfolio.

“As bitcoin ETFs can be bought and sold within your existing brokerage account – such as CommSec, NABtrade, Interactive Brokers – they can more easily be placed into your existing SMSF infrastructure,” the blog read.

“This means less work for you, your accountant, and potentially lower capital gain taxes.”

While some crypto exchanges allow accounts to be opened in the name of an SMSF, most do not.

“This can mean that accountants either cannot add them to your SMSF, or that it will require more work for them. And this in turn can cause greater charges from your accountant.”

Motley Fool contributor Tony Yoo has positions in Bitcoin, Ethereum, and Solana. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin, Ethereum, and Solana. The Motley Fool Australia has positions in and has recommended Bitcoin, Ethereum, and Solana. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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